Wealth Funds Hear Disclosure Warning in Davos Meeting (Update4)
Wealth Funds Hear Disclosure Warning in Davos Meeting (Update4)
By Yoolim Lee and A. Craig Copetas
Jan. 24 (Bloomberg) — Leaders of world finance told the
holders of $2.5 trillion in sovereign wealth funds that they need
to reveal more about their activities or risk further
antagonizing American politicians.
In a meeting in Davos, Switzerland, that included chief
executive officers James Dimon of JPMorgan Chase %26amp; Co., Lloyd
Blankfein of Goldman Sachs Group Inc., John Mack of Morgan
Stanley and Stephen Schwarzman of Blackstone Group LP,
representatives of government-controlled investment funds from
Kuwait, Saudi Arabia, Malaysia, Russia and South Korea heard that
“Washington;; would demand more disclosure if they didn;t
provide it, according to a person who was in the room.
The session yesterday at the World Economic Forum was closed
to the press and public. The funds have invested at least $59
billion in the past year to shore up the balance sheets of such
Wall Street banks as Citigroup Inc., the biggest U.S. bank, and
Merrill Lynch %26amp; Co., prompting U.S. legislators to call for them
to show more openness.
“We were talking trillions and trillions of dollars in
sovereign wealth funds,;; said Rahul Bajaj, chairman of Bajaj
Auto Ltd., India;s second-largest motorcycle maker. He said that
when the U.S. banks asked for “more transparency, the Middle
East said, `What do we need that for?;;;
The 75 to 100 people seated in chairs around a circle at the
Davos conference center yesterday mostly explained each others;
points of view, according to the participant, who declined to be
identified.
Why Now?
With the exception of Norwegian Finance Minister Kristin
Halvorsen, whose fund publishes its investments and holdings on
its Web site, representatives of the government investment
vehicles responded to the call for more disclosure by saying they
had been in business for as much as 25 years and didn;t
understand why new information was needed, the person said.
For the first time in its 37-year history, the World
Economic Forum included a panel session on sovereign wealth funds
today, at which some of the themes from yesterday;s private
meeting were reprised. Bader al-Saad, managing director of Kuwait
Investment Authority, Muhammad Al-Jasser, vice governor of the
Saudi Arabian Monetary Agency and Russian Finance Minister Alexei
Kudrin resisted calls for a code of conduct to head off attacks
by U.S. lawmakers.
Cart Before Horse
“It;s putting the cart before the horse,;; Al-Jasser said,
questioning why the funds should be seen as a “danger.;; “It;s
like the sovereign wealth funds are guilty until proven
innocent.;;
Former U.S. Treasury Secretary Lawrence Summers, also
speaking on today;s panel, said the funds raised questions about
corporate governance, multiple motives such as their own national
development and potential abuse of political influence.
There is concern in Congress as well. Senator Christopher
Dodd, a Connecticut Democrat, told reporters in Washington
yesterday “we must remain vigilant that such investments are
consistent with our national security and economic growth.;;
Democratic presidential candidate Hillary Clinton said on
Jan. 15 that she is “very concerned;; about the funds; lack of
disclosure. “We;ve got to know more about them, they;ve got to
be more transparent,;; the New York senator said during a debate
in Las Vegas.
Implications Requested
When Schwarzman;s Blackstone last June sold $3 billion of
stock to China;s soon-to-be formed State Investment Co., Senator
Jim Webb, a Virginia Democrat, asked the U.S. Treasury, the
Securities and Exchange Commission and the Homeland Security
Department to investigate “national-security implications;; of
the deal.
That concern was acknowledged at the meeting, said Russia;s
Kudrin, who oversees the country;s Stabilization Fund and spoke
to the group.
“There have been talks as to whether there should be
restrictions on these funds,;; Kudrin told Bloomberg Television
later. “I don;t support such fears. Attempts to limit such
investment bring far more risks today than the sovereign funds
themselves.;;
Sovereign wealth-fund assets may more than quadruple in
value by 2015 to $12 trillion — equal to the current
capitalization of the Standard %26amp; Poor;s 500 Index — from about
$2.5 trillion now, according to Morgan Stanley. It predicts the
funds will have assets of $28 trillion by 2022, more than double
the size of the U.S. economy.
Code of Conduct
At today;s panel, Lehman Brothers Holdings Inc. CEO Richard
Fuld called for a code of conduct for all investors rather than
singling out sovereign funds. Schwarzman said it is “almost
amusing to see pools of capital that we;ve dealt with forever in
a normal way have a new name called sovereign wealth funds where
they;re supposed to be an inherent threat.;;
Secretary of State Condoleezza Rice endorsed the idea of a
neutral or multilateral group developing principles related to
sovereign wealth funds.
“The United States remains open to investment from around
the world,;; Rice said in an interview with CNBC. “As long as
the transactions are based on economic principles, they should go
on.;;
Norway;s Halvorsen also said a code of conduct would be
“beneficial.;;
After the private meeting yesterday, she told Bloomberg
Television: “I think the audience in general, they don;t really
like the sovereign wealth funds, but they need the money.;;
David Rubenstein, co-founder of the buyout group Carlyle
Group, said it was wrong to criticize the funds.
“I don;t think it;s fair to criticize the sovereign wealth
funds for buying stakes in these firms when they were asked to do
so,;; Rubenstein said. “They weren;t knocking the doors down, it
was the other way around. You can;t criticize them for taking
these terms when at the same time you need the money.;;
To contact the reporters on this story:
Yoolim Lee in Davos at
